The manufacturing sector slowed down in May but still grew for the 12th straight month, according to the Institute for Supply Management's (ISM) purchasing managers index of 53.2 released this morning.

The May index was a 1.7-point drop compared with April and offset the 1.2-point acceleration in the previous month. Manufacturing has been forecast to quicken its pace in the second quarter, based on expected stronger consumer demand as well as more bookings for business equipment. But the new orders index of the ISM PMI fell by 1.8 points to 53.3, indicating that while bookings are still growing, they are slowing down.

Growth in manufacturing production also slowed down, as the production index decreased by 0.5 percent to 55.2. According to ISM's tracking, the pace of manufacturing output, while still growing, has fallen for three straight months. Manufacturers responded by slowing down their pace of hiring, as the employment index fell sharply from 54.7 to 51.9.

Manufacturers were able to work off their still-growing orders backlogs significantly in May, as the backlogs index fell from 55.5 to 52.5. Moreover, at an index reading of 53, inventories at manufacturers grew at the same pace as April, but in a positive sign for them, their customers' inventory whittling is slowing down and customer inventories remain too low for them, at a reading of 46.5.

Supplier deliveries to manufacturers have slowed for 12 consecutive months, and in May they slowed by a significant 3.4 points. According to ISM, respondents to its monthly survey commented of generally steady growth but noted some areas of concern regarding raw materials pricing and supply tightness and shortages. ISM says helium, hydraulic components, transportation services, and wood pallets are commodities in short supply. Prices for commodity metals, natural gas, maintenance supplies, packaging materials, plastics resins, and wood pallets all went up.

Exports, a consistent bright spot in the ISM PMI, slowed by 0.5 points in May to a still-robust 56.5. Monthly exports have continued to grow without retrenching since December 2012.

President Announces Support for 12 Manufacturing Regions

The Obama administration has named 12 regions around the United States that will receive federal aid designed to stimulate private-sector investment and turn them into manufacturing hubs. This is the biggest follow-up development to date in the president’s Investing in Manufacturing Communities Partnership (IMCP) initiative that started last September.

The first 12 IMCP regions are:

■ Southwest Alabama, led by the University of South Alabama.

■ Southern California, led by the University of Southern California Center for Economic Development.

■ Northwest Georgia, led by the Northwest Georgia Regional Commission.

■ The Chicago metro region, led by the Cook County Bureau of Economic Development.

■ South Kansas, led by Wichita State University.

■ Greater Portland region in Maine, led by the Greater Portland Council of Governments.

■ Southeastern Michigan, led by the Wayne County Economic Development Growth Engine.

■ The New York Finger Lakes region, led by the city of Rochester.

■ Southwestern Ohio Aerospace Region, led by the city of Cincinnati.

■ The Tennessee Valley, led by the University of Tennessee.

■ The Washington Puget Sound region, led by the Puget Sound Regional Council.

■ The Milwaukee 7 Region, led by the Redevelopment Authority of the city of Milwaukee.

These regions will benefit from $1.3 billion in funding from about 11 federal agencies, as they were chosen from 70 entrants to be the most promising areas for attracting multinational manufacturing companies to set up operations there. The president and his administration are counting on public and private investments in these areas, along with the linking between local governments and federal agencies, to generate high-tech jobs, exports, and economic growth. The IMCP will help these regions promote themselves after they convinced an interagency panel of their economic development and public-private partnership plans.

"The 12 manufacturing communities announced today represent a diverse group of communities with the most comprehensive economic development plans to attract business investment that will increase their competitiveness," said Commerce Secretary Penny Pritzker. "IMCP is a critical part of our 'Open for Business Agenda' to strengthen the American manufacturing sector and attract more investment to the United States."

The IMCP is one of several Obama administration initiatives this year to support the U.S. manufacturing sector’s growth and global competitiveness, operating alongside the National Network for Manufacturing Innovation and a pair of grant programs totaling $600 million for job training and apprenticeships in the advanced manufacturing, healthcare, and technology sectors.

Indonesia's Industrial Growth Powers Machine Tool Demand

Indonesia has been a manufacturing force in recent years as a result of growth in the mining, power generation, auto, and aerospace and defense industries. Due to the continued growth in these areas, the south Asian nation is likely to approach double-digit growth in the consumption of machine tools and cutting tools through 2017.

Frost & Sullivan’s new report on Indonesia’s machine tool market forecasts a 9.1 percent compound annual growth rate (CAGR) through the next three years to reach $6.36 billion. The Mountain View, Calif.-based analyst notes that in terms of machine tool suppliers by country, two nations taking the most advantage of robust Indonesian industries are Japan and China. Roughly 45 percent of the machine tools imported into Indonesia went toward the production of cars, while the balance of demand came from oil and gas and transportation.

According to Frost & Sullivan, Taiwanese machine tool builders have also taken advantage of the demand for machinery in Indonesian heavy industries. Indonesia has become the sixth-largest destination for Taiwanese machine tool exports, underscoring an annualized 23.5 percent surge from January to October 2012 in Taiwan’s metalcutting machinery exports to other Southeast Asian nations. The Frost & Sullivan report does not mention the level of U.S. machine tool exports to either Indonesia or Southeast Asia.

Frost & Sullivan pegs the global machine tool industry in a growth stage, expanding by a CAGR of 6.2 percent through 2017 to reach roughly $15 billion worldwide. China took over as the world’s biggest user of machine tools and cutting tools in 2002, and machinery makers in many countries depend on the nation for their export sales. Meanwhile, another growing Indonesian market is nuclear power, which requires machined steel and steel alloy parts and components.

Machine tool and cutting tool usage in Indonesia is anything but entry level. The use of composite materials in the nation’s auto industry is fueling the consumption of diamond-tipped cutting tools as opposed to conventional carbide cutting tools. A Frost & Sullivan consultant, K Vinod Cartic, added that the manufacturing of intricate components in Indonesia’s defense and aerospace industries is promoting high-precision cutting tool use. “Diamond tools are used in the machining of lightweight non-ferrous materials such as aluminum, copper, tin, and composite materials,” he said. “The growing demand for these materials in the fabrication of automobile components is likely to increase the demand for diamond-tipped cutting tools.”

Frost & Sullivan predicts a tenfold increase in automobile production in Indonesia, India, and China in the next five years.

Poor Housing Starts Stump Construction Spending

Construction spending continued a sluggish growth pace in April, expanding by just 0.2 percent to $953.5 billion, in the Commerce Department's preliminary report for the month released this morning. Housing starts were flat, showing no growth compared with March.

The pace failed to meet economists' predictions of 0.8 percent growth and, along with a similarly lukewarm May manufacturing index released today by the Institute for Supply Management, put a crimp in expectations of a gaining economy and strong second-quarter growth.

Public construction finally broke out of its slump, growing 0.8 percent in April after exhibiting virtually zero growth since January. Outlays were led by retail construction (14.7 percent) as well as the transportation (3.6 percent) and sewage and waste disposal sectors (4.7 percent). However, power generation utilities and new office starts tumbled, falling 5.1 percent and 4.5 percent, respectively.

Overall private construction was flat in April. Gains in office and amusement park construction were mitigated by declines in power generation, communications, and manufacturing construction. Construction activity in communications infrastructure dropped a significant 11.7 percent.